Research Summary
The report analyzes the DeFi lending market, focusing on the performance of leading protocols such as Aave and Compound. It also discusses the growth strategies of new entrants like Morpho and Spark, and the implications of total value locked (TVL) in these protocols. The report further highlights the role of daily active users (DAUs) and the potential risks associated with early-stage technology in the DeFi lending market.
Key Takeaways
Market Dominance of Aave
- Aave’s Market Leadership: Aave has maintained a significant market dominance in the DeFi lending sector, holding approximately 50% market share for three consecutive years. This dominance contradicts the notion that open-source crypto protocols lack moats.
Growth Strategies in the Lending Market
- Strategic Approaches: New entrants in the market, such as Morpho and Spark, have adopted unique growth strategies. Morpho built an aggregator on top of Aave and Compound, while Spark operates a lending protocol as a subDAO within the broader Maker system. Venus, on the other hand, has focused on the BNB Chain ecosystem.
Implications of Total Value Locked (TVL)
- TVL Analysis: A high TVL suggests that a significant portion of the capital within the protocol remains idle. Aave’s substantial TVL may reflect a conservative risk management strategy, while Morpho’s relatively low TVL indicates an approach leaning towards capital efficiency.
Role of Daily Active Users (DAUs)
- DAU Metrics: DAUs are calculated based on user actions such as deposits, borrows, repayments, and withdrawals. However, a significant portion of the lending protocol user base may comprise aggregators, such as wallets or other protocols, rather than individual users.
Risks Associated with Early-Stage Technology
- Technology Risks: All projects in the DeFi lending market face risks related to early-stage technology. An example of this is the oracle bug on Euler, which resulted in a significant drop in use overnight.
Actionable Insights
- Monitor Morpho’s Growth: Given Morpho’s unique growth strategy and the introduction of Morpho Blue, it’s worth keeping an eye on its development as it could become one of the most widely used lending protocols in DeFi.
- Understand the Implications of TVL: High or low TVL can indicate a protocol’s risk management strategy or capital efficiency. Understanding these implications can provide insights into a protocol’s operational and risk-related aspects.
- Consider the Role of DAUs: DAUs can provide a measure of a protocol’s active user base. However, it’s important to consider that a significant portion of the user base may comprise aggregators, which can result in high monetary values, even with low DAU counts.
